During the keynote interview, Mr. Cook was defiant about Apple’s cash position, calling a recent fight with a hedge fund a “silly sideshow.” Mr. Cook also spoke about Apple’s innovation, the potential for product cannibalization and why Apple stores are “like Prozac.”

There were no major surprises — he repeated much of what he said during earnings calls — but this speech did represent his first public comments about the spat with hedge fund manager David Einhorn. And he did have a few bits of news, like Apple now having paid app developers a cumulative total of $8 billion.

Cook: You really want to get started. Apple doesn’t have a depression-era mentality. Apple makes bold and ambitious bets on product and we’re conservative financially. If you look at what we’ve done in terms of investment, last year we invested $10 billion in CapEx. We think we’re gonna do a similar amount this year. We’re investing in retail around the world, in product innovation, in new product, in supply chain. We’re acquiring some companies. My definition of a depression-era mentality wouldn’t be of a company investing a pair of tens over two years. To add to that fact, we’re returning $45 billion to shareholders through a combination of dividends and buybacks. I don’t know how a mentality with a depression-era mindset would have done all those things.

Now, we do have a lot of cash… Last quarter alone the cash flow from operations was over $23 billion. It’s an incredible privilege where we can seriously consider returning additional cash to our shareholders. The management team and the board are in very active discussions. That’s what our shareholders want.

“The disagreement centers around a proposal on Apple’s proxy, which we filed back in December. “It’s about the rights of shareholders. It’s not about whether Apple returns additional cash to shareholders, it’s not about how much cash to return to shareholders, it’s not about any of those things”

Cook said Apple was looking at what things the company could do to improve governance further. “We thought we should eliminate a blank check preferred from Apple’s charter.”

Cook: I find it bizarre we find ourselves being sued for doing something that’s good for shareholders. It’s a silly sideshow, honestly. I think it would be a lot better use of funds to donate that time and money to a worthy cause. You’re not gonna see us do campaign mailing, you’re not gonna see a “yes on 2″ in my front yard. This is a waste of shareholder money, it’s a distraction, and it’s not a seminal issue for Apple.

I supported Prop 2, I’m gonna support it. It’s not something we’re going to spin cycles on. The serious issue on hand is the return of cash: how to do it, how much to do, and we’re very serious about that. But this Prop 2 thing is a silly sideshow. We feel so strongly for Apple that shareholders should approve any issuance of preferred stock.

Q: In the past, you’ve done a handful of deals a year. Is there something in Apple’s culture that turns you against the concept of large acquisitions?

Cook: If you look at the last 3 years, we’ve averaged about an acquisition every other month. They’re companies where they have really smart people, and, or, IP. Generally speaking we’ve been in many cases taken something that they’re working on and move the skills to work on something else. Great example: we bought a company a few years ago and we were in the process of building our capability to design the engines that are in all of today’s iPhones and iPads. This was an incredibly skilled group of guys, and they could supplement an incredible group of folks and they were working on PowerPC at the time. We didn’t have an interest in that, so we moved the skills to work on our iPhone and other engines. We will do more of those.

We have looked at large companies. In each case, it didn’t pass our test. Will we look at more, I think so. But we’re disciplined and thoughtful, and we don’t feel a pressure to go out and acquire revenue. We want to make great products. If a large company could help us, then that would be of interest. But again, deliberate, thoughtful, is our mantra.

Cook: It’s never been stronger. Innovation is so deeply embedded in Apple’s culture. The boldness, ambition, belief there aren’t limits, a desire to make the very best products in the world. It’s the strongest ever. It’s in the DNA of the company.

Cook: If you look at some essentials, there’s no formula. If there was a formula, a lot of companies would have bought their ability to innovate. Some essentials are skills and leadership.

If you look at skills, Apple is in a unique and unrivaled position. Apple has skills in software, in hardware, and in services. The model of the PC industry, that model’s not working for what consumers want today. Consumers want an elegant experience where the technology flows to the background. The real magic happens at the intersection of these, and Apple has the ability on all three of these spheres to innovate like crazy and really cause magic.

“When I look around the executive team table, I see superstars. I see people who are at the very top of their game, I see people like Jony Ive, who’s the best designer in the world. He’s now bringing his talents to our software as well. I see people like Bob Mansfield, who I thin is the top silicon expert in the world. Jeff Williams, there’s nobody better in operations anywhere. I see Phil and Dan and Craig and I see all of these guys who are so focused on product and at the very top of their game, and it’s a privilege to be a part of that.”

(Side note: Scott Forstall, the original head of the iPhone operating system, left the company just a few months ago.)

Q: Are we getting to a point in the most important category where you’ve reached a natural limit?

Cook: There’s that word limit. We don’t have that in Apple’s vocabulary. When I zoom out and look at the smartphone market in particular, what I see is a market that is projected to double in the next few years. This is a huge market. On a longer-term basis, all phones will be smartphones and there’s a lot more people in the world than 1.4 billion, and people love to upgrade their phones very regularly.

“Over 40% of that 500 million happened over last year. Across that period of time, we built an ecosystem that is the best in customer experience on the planet. In addition, it’s fueling an incredible economic gain for developers. We’ve paid over $8 billion to developers.”

“When I look at what Apple has done in China, I think it’s hard for anyone to evaluate and say it’s not impressive. The company has gone from a few hundred million in revenue in one year to $3 billion in the next to $13 billion the next… we’re adding over $10 billion every year.”

Q: For prepaid customers, the iPhone is not affordable. How do you think about creating a great customer experience?

Cook: This is a popular question. Our north star is great product. When everyone comes to work every day, they’re thinking about that front and center. We wouldn’t do anything we wouldn’t consider a great product. There are other companies that do that, and that’s just not who we are.

“That said, if you look at what we’ve done to appeal to people who are more price sensitive, we lowered the price for iPhone 4 and iPhone 4S, and in the December quarter, we didn’t have enough supply of iPhone 4, so it suprised us as to the level of demand we had for it.”

“We are making moves to make things more affordable. When we came out with iPod it was $399, today you can buy an iPod Shuffle for $49. Instead of saying how can we cheapen this iPod to get it lower, we said how can we do a great product, and we were able to do that. The same thing, but in a different concept in some ways.”

On building a cheaper Mac: “We concluded we couldn’t do a great product, but what did we do — we invented iPad. Now all of the sudden we have an incredible experience and it starts at $329. Sometimes you can take the issue and you can solve it in different ways.”

“The truth is, let me compare to the PC industry, over the years, the way the companies competed were two things: specs and price. People wanted to say, I’ve got the largest drive and fasted processor. In the camera business, people began to talk about megapixels. The truth is, customers want that a-ha moment, and that’s rarely a function of any of those things.”

“Do you know the speed of an AX processer? You probably don’t. Does it matter? You want a fantastic experience.”

“When you look at displays, some people are focused on size. There’s a few other things about the display that are important. Some people use displays, the color saturation is awful. The Retina display is twice as bright as an OLED display. I only bring these points up to say there are many attributes to the display, and what Apple does is sweat every detail. We care about all of them and we want the best display, and I think we’ve got it. I’m not gonna comment about what we’re gonna do in the future, but it’s always broader than that which can be defined by a simple number”

Cook: The tablet market will be huge, it will be a huge opportunity for Apple. It’s one of those areas showing software, hardware, services being integrated and creating an experience that is jaw-dropping. To put the 23 million in context, HP in that same quarter sold 15 million PCs. If you look at the full year last year, there were more iPads sold than HP sold of its entire PC line-up. There has been a sea-change. We’re in the early innings of this game. The projection is that this is going to triple in 4 years. When you think about that, the actual number is 375 million, that’s more PCs than are being sold around the world. The tablet is attracting people who have never owned a PC and people who have owned them but aren’t great in the experience.

“We find ourselves in virtually every Fortune 500 company, we find ourselves in education — we’re put a lot of education in that area, for people to do fantastic textbooks — and of course we find ourselves in consumers. Usually it takes a long time for products to engage all of these markets, we’ve kind o already done that. This is very exciting, it’s very profound for the industry, it once again shows that the age-old model of everybody doing a sliver of something and hoping it comes together in a product that has a great experience, customers are buying it and liking it.”

Cook: The truth is the first time I got asked about cannibalization was when Apple came out with the iBook. Portables went on to be three quarters or more percentage of the Mac and Mac did an all-time record last year. If you look at when we came out with iPad, what did people worry about: they worried, oh my god you’re going to kill the Mac. The cannibalization question raises its head a lot. The truth is, we really don’t think about it that much. Our basic belief is, if we don’t cannibalize, someone else will. In the case of iPad particularly, I would argue that the Windows PC market is huge and there’s a lot more there to cannibalize then there is of Mac, or of iPad. I think if a company ever begins to use cannibalization as a primary or even a major factor of what products to go to, it’s the beginning of the end.

“When we looked at iPad, what you would find when you looked at some data, you would find that over 50% of the people in countries like China and Brazil that were buying an iPad don’t own an Apple product. This is a huge thing for us to go out and show people what Apple is and introduce them to the company. Through the years, we’ve found a very clear correlation between people getting in and buying their first Apple product and some percentage of them buying other Apple products.”

“I don’t want to get into projecting margins beyond what we do in conference calls. Here’s the way we look at it: you can always, we’ve done this many times, you can go in and accept a lower margin on any product for a strategic reason. That strategic reason might be our entry intot hat area. At the background, we always know that this halo effect play, we had confidence in our ability to execute the supply chain and walk down costs. In the area of tablets, we think the market is huge and it makes sense to have another product there. People wanted a full iPad experience, but in something smaller and lighter. We have other ways to make money and reward shareholders.”

“Last quarter, if you looked at our software and services revenue, it was $3.7 billion. If you look at that versus software and services companies, that’s an incredible amount of revenue.”

“Because we’re not a hardware company, there are other things we’re doing and could do to have revenues and profits flow. We don’t look at the sale of a product as our last part of the relationship with the customer, it’s the first. We are very focused on that. There’s also financial benefit on doing that. Being larger than a hardware company affords us the ability to not worry about so much in the short term. We’re managing Apple for the long term. I know people care about quarters and so forth and we care, but the decisions we make, the profound decisions we make, are for Apple’s long-term health. Not the short-term 90-day clock.”

“Last year, we put enormous energy in expanding our ecosystem geographically. If you now look, our App Store is operating in 155 countries. Our iTunes store is operating in over 100 countries. Free iBooks are in over 100 countries, paid in over 50. If you look at services like iCloud, it operates in virtually every country. iMessage runs in every country it can. There’s only one real major country where we’re not selling movies. I really feel like we advanced significantly last year in getting our infrastructure around the world at a different level. Our intention is to have a great ecosystem everywhere and have all of it everywhere.”

Cook: There’s no better place to discover, explore and learn about our products than in retail. Our team members there are the most amazing, awesome, incredible people on earth. It’s the best retail experience, it’s an experience where you walk in and instantly realize it’s for the purpose of serving, not selling. The genius bar helps you not only with an issue, but it helps you get more out of your Apple products over the life of them. It’s a place that has an important role in the community.

“We’re closing 20 of our stores and moving them and making them larger. We’re adding 30 more. That gets us in 13 countries, there’s a lot more to go. We added 4 stores in Greater China last quarter. We’re gonna add lots more.”

“One thing that’s not well understood, I don’t think we would have been nearly as successful with iPad if it weren’t for our stores. The tablet was ingrained in their mind as this heavy thing the Hertz guy held. But our store is the place to go and discover and try it out and see what it can do. I don’t think the launch would have been nearly as successful without stores that welcome people in, at 10 million a week, and show this. It gives Apple an incredible competitive advantage.”

Cook: I’m incredibly proud… I’m most proud of our employees. They’re there to do not only that great work, but the best work in their lives. They’re there to do it without limits, they’re the most creative in the world. It’s a privilege. I’m incredibly proud of the products, we have the best smartphone on the market, we have the best tablet on the market, we have the best digital music player on the market. For those things we elect to do, and we continue to focus on a few, they’re really great. I’m incredibly bullsih about the future and what Apple can do and more contributions it can make to the world.

I’m very proud that we’re out front, that we have a spine on supply responsibility. I’m incredibly proud that we’re doing heavy lifting with the environment, that we’re eliminating toxins. I’m proud we have the largest private solar farm anywhere, that we can run our data centers on 100% renewable energy. I don’t mean to gush, but it’s how I feel. It’s the privilege of a lifetime and humbling.

Comments (5 of 34)

It's a good company to go for. Simply look at the fact figure, this is no doubt a cheap stock and a good one. That's amazing to see so many people have a different view and judge it by the short term only.
Like the Facebook IPO, most people go after the noise and ignore the fact figure.
Even if apple keep the cash in the bank for low interest, and the sales is zero growth rate, the stock is still cheap!

12:10 am February 13, 2013

Obama wrote:

Who's holding them back...... Bring them on....

5:04 pm February 12, 2013

kristin s wrote:

would be nice to see at least ONE woman's name here

5:04 pm February 12, 2013

Warren wrote:

Apple still benefits from Steve's innovations and ideas. ever since his death there is no innovation there whatsoever. Wrist whatever-computer?apple tv?? come on...it's a joke. it is only good to manipulate the market.
I cannot see any innovation nor any lines at Apple stores anymore. It is sad to see Apple getting back to the mediocre status it had experienced in the early '90s. The tragedy is that Jobs won't come back again to save them..

2:33 pm February 12, 2013

Obama wrote:

Why would Cook sit with Mrs. Obama, not all Apple product buyers agree with the President.... I am considering a different source for the first time in my life and I am 50 years old